Hermès reports record high operating margin

There was no sign of waning demand for luxury goods in China from French luxury brand Hermès today as it reported a record high operating margin and an annual 8.9 per cent profit rise to €1.218 billion.

The silk scarves and Birkin bag brand raised its dividend
and reported net profit up 6.8 per cent to €790 million – beating rivals such as LVMH
and Gucci owner Kering which have all been hit recently by a sales slowdown in
China.

Patrick Albaladejo, directeur general for strategy and
image, said: “The results show the strengths of our business model of
craftsmanship and quality."

Although other luxury goods brands have recently suffered
from a crackdown by government in China on gift giving and the move away from
heavily logoed products such as Gucci or Louis Vuitton bags, Hermès reported
full-year Asian sales (excluding Japan) up 16 per cent.

Albaladejo added: “We observed two contrasting factors in
China. On one hand the fight against corruption by government. This has
particularly affected the watch industry where watches were used in gift
giving. But on the other hand we have seen an increase in sophistication among
Chinese consumers.

This is happening much faster in China than we have noted in
other regions such as Japan previously. So customers in China understand the
importance of beauty and craftsmanship. They are less tolerant of big logos.
This is therefore positive for us as we have always been in the discreet luxury
sector.”

He said that the group would increase its products in
clothing and accessories to meet demand.

He explained: “Bags are our biggest segment and represent
around 44 per cent of sales. But because these are handmade by our craftsman we have
limited production –the growth is always limited to 8-10 per cent growth a year.

"This is because we have to
train every new crafts person. So we have to grow in other areas where there is
potential to increase production. So clothes and accessories such as jewellery,
homewares and furniture have been growing well.”